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microeconomics principles applications

Principles Of Microeconomics 12th Global Edition Karl E. Case, Sharon E. Oster, Ray C. Fair - Solutions

2.2 Give at least three examples of how savings can be channeled into productive investment. Why is investment so important for an economy? What do you sacrifice when you save today?
2.1 The Eurozone debt crisis did not stop the European Central Bank (ECB) raising interest rates twice in 2011 as it focused on the “day job” of fighting inflation. The central bank that sets monetary policy for the 17-country Eurozone lifted its benchmark rate by a further quarter of a point
1.3 Describe the capital stock of your college or university.How would you go about measuring its value? Has your school made any major investments in recent years? If so, describe them. What does your school hope to gain from these investments?
1.2 For each of the following, decide whether you agree or disagree and explain your answer:a. Capital and investment are just two words for the same thing.b. For a capital asset to depreciate, it must physically become worn out and can no longer be used.c. Social capital provides services to the
1.1 Which of the following are capital, and which are not?Explain your answers.a. Ambulance Medic training and certification from the Red Crossb. The Khanna Paper Mill in Kalimpong, Indiac. The London Eye giant Ferris wheel on the South Banks of the River Thamesd. An individual savings account at
1. Why do some companies have more institutional shareholdings and less individual holdings than other companies?
5.2 The following data represents output for a perfectly competitive firm with a product price of $2 per unit. Assume that the productivity of each resource is independent of the quantity of the other two.a. Fill in the table.b. If the price of labor is $4 per unit, the price of capital is$10 per
5.1 For a given firm, MRPL = $75 and MRPK = $150 while PL = $50 and PK = $200.a. Is the firm maximizing profits? Why or why not?b. Identify a specific action that would increase this firm’s profits.
4.4 The Australian city of Sydney announces a plan to provide housing subsidies for its teachers in order toaddress the shortage of teachers currently experienced in the city. These subsidies are expected to reduce the cost of living in the city for several hundred teachers. How will this housing
4.3 Describe how each of the following events would affect(1) demand for auto workers and (2) auto workers’ wages in the country of Astoria, home of the all-electric car, the Astro Galactica. Illustrate with supply and demand curves.a. A sharp decrease in interest rates on new automobiles
4.2 Japan has traditionally had an employment system characterized by a “lifetime” employment relationship between employer and employee and salaries that are based on length of service with the employer—starting low, rising quickly after age 50, and featuring (in addition to a pension) a
4.1 Assume that a firm that manufactures gizmos can produce them with one of three processes used alone or in combination. The following table indicates the amounts of capital and labor required by each of the three processes to produce one gizmo.Units of Labor Units of Capital Process 1 5 2
3.5 Houston, Texas, is the only major U.S. city with virtually no zoning laws. This means that single-family homes, apartment buildings, shopping centers, high-rise buildings, and industrial complexes can all be built in the same neighborhood. Of the major U.S. cities, Houston was also one of the
3.4 The price of land is said to be “demand-determined.”Explain what this means and draw a graph to exemplify your explanation.
3.3 [related to the Economics in Practice on p. 251] In anticipation of the opening of Disney’s latest theme park in Shanghai, China in the first half of 2016, the value of land surrounding the theme park construction site has sky rocketed. How do you explain this land price increase?
3.2 A mining company’s land concession in Angola incorporates five major mines that extract copper. The productivity of each mine is as follows:Annual Yield Pounds Mine 1 18 million Mine 2 11 million Mine 3 8 million Mine 4 5 million Mine 5 4 million Assume that each mine is the identical size
3.1 The demand for land is a derived demand. Think of a popular location near your school. What determines the demand for land in that area? What outputs are sold by businesses located there? Discuss the relationship between land prices and the prices of those products.
2.4 In 2013, the CEO of Procter & Gamble, A. G. Lafley, earned $1,800,000 in total compensation (salary, bonuses, and other compensation) and Reynold Levy, the president of the non-profit Lincoln Center for the Performing Arts, earned $1,725,493. How can a non-profit organization like the Lincoln
2.3 At many colleges and universities, the highest paid member of the faculty is an athletic coach. At Duke University in Durham, North Carolina, basketball coach Mike Krzyzewski earned a salary of more than $7.2 million during the 2013-2014 academic year, while the average total compensation for
2.2 Assume that you are living in a house with two other people and that the house has a big lawn that must be mowed. One of your roommates, who dislikes working outdoors, suggests hiring a neighbor’s daughter to mow the grass for $40 per week instead of sharing the work and doing it yourselves.
2.1 The following graph is the production function for a firm using only one variable factor of production, labor.a. Graph the marginal product of labor for the firm as a function of the number of labor units hired.b. Assuming the price of output, PX, is equal to $6, graph the firm’s marginal
1.7 Suppose that all employers in the internet industry currently allow their programmers and web designers to work from home – which appeals to those with childcare or other responsibilities that can be accomplished at less cost than if they had to leave home and commute to work. Now suppose
1.6 For a perfectly competitive firm, the marginal cost curve determines how much output a profit-maximizing firm ?
1.5 Several acres of sugar crop in India have been damaged from a faltering monsoon, with farmers in certain states in the world’s second-biggest producers being forced to use damaged crops as cattle feed. With bumper harvests creating an Indian sugar glut, the drought could result in a decline
1.4 [related to the Economics in Practice on p. 245]According to the Organization for Economic Cooperation and Development (OECD), labor productivity increased and unemployment also increased in Australia from 2013 to 2014. Explain why an increase in labor productivity and an increase in
1.3 Consider the following information for a soccer ball manufacturing firm that can sell as many soccer balls as it wants for $12 per ball.number of Workers number of Soccer Balls Produced Per Week MPL TR MRPL 0 0 — — —1 20 — — —2 50 — — —3 90 — — —4 — 50 — —5 180 —
1.2 The following schedule shows the technology of production at Mahalo Macadamia Nut Farm for 2015:Workers Total Pounds of Macadamia nuts Per Week 0 0 1 1,200 2 2,000 3 2,500 4 2,700 5 2,800 6 2,400 If macadamia nuts sell for $3.50 per pound and workers can be hired in a competitive labor market
1.1 According to the Bureau of Labor Statistics, the average weekly earnings of production and nonsupervisory employees in education and health services was $822 in March 2015, up from $671 in March 2006. All else equal, such an increase in wages would be expected to reduce the quantity of labor
1. Farmland prices across some regions are skyrocketing, though the commodities associated with the land are experiencing a significant decline in prices.Why is this so?
1A.5 Assume demand is decreasing in a contracting industry.Draw three supply and demand diagrams that reflect this, with the first representing an increasing-cost industry, the second representing a decreasing-cost industry, and the third representing a constant-cost industry. Assume that prior to
1A.4 Evaluate the following statement. If a firm is facing internal diseconomies of scale, it must be in an industry which is experiencing external diseconomies.
A.3 A representative firm producing watermelons is earning a normal profit at a price of $35 per hundred pounds. Draw a supply and demand diagram showing equilibrium at this price. Assuming that the industry is a constant-cost industry, use the diagram to show the long-term adjustment of the
1A.2 Consider an industry that exhibits external economies of scale. Now suppose that over the next decade, the demand for that industry’s product increases rapidly. Describe the adjustments likely to follow. Use diagrams in your answer.
1A.1 In deriving the short-run industry supply curve (the sum of firms’ marginal cost curves), we assumed that input prices are constant because competitive firms are pricetakers. This same assumption holds in the derivation of the long-run industry supply curve. Do you agree or disagree? Explain.
3.6 The following graph shows the supply curve and three different demand curves for a perfectly competitive industry. The table represents cost data for a representative firm in the industry.3.7 For each of the three scenarios in the previous question (P* = 25, P* = 15, and P* = 10), explain the
3.5 Assume that you are employed as an analyst at an international consulting firm. Your latest assignment is to do an industry analysis of the fast-growing “telemonica” industry.After extensive research on this combination cell phone and harmonica, you have obtained the following
3.4 The following problem traces the relationship between firm decisions, market supply, and market equilibrium in a perfectly competitive market.a. Complete the following table for a single firm in the short run.OUTPUT TFC TVC TC AVC ATC MC 0 $150 $ 0 – – – –1 – 40 – – – –2 –
3.3 [related to the Economics in Practice on p. 233] St.Mark’s Square is a beautiful plaza in Venice that is often frequented by both tourists and pigeons. Ringing the piazza are many small, privately-owned cafes. In these cafes, a cappuccino costs 9 euros despite the fact that an equally good
3.2 Each year, lists of the fastest-growing and fastest-dying industries in the world are published by various sources.Do some research to find 3 industries from each of these two lists for the current year and briefly explain why you think these industries are either growing or dying. For each
3.1 From 2000 to 2005, the home building sector was expanding and new housing construction as measured by housing starts was approaching an all-time high. (At www.census.gov, click “Housing,” then click“Construction data.”) Big builders such as Lennar Corporation were making exceptional
2.9 The long-run average cost curve for an industry is represented in the following graph. Add short-run average cost curves and short-run marginal cost curves for three firms in this industry, with one firm producing an output of 10,000 units, one firm producing an output of 20,000, and one firm
2.8 The shape of a firm’s long-run average cost curve depends on how costs vary with scale of operation. Draw a long-run average cost curve for a firm that exhibits economies of scale, constant returns to scale, and diseconomies of scale. Identify each of these sections of the cost curve and
2.7 The concept of economies of scale refers to lower perunit production costs at higher levels of output. The easiest way to understand this is to look at whether long-run average cost decreases with output (economies of scale)or whether long-run average cost increases with output(diseconomies of
2.6 Indicate whether you agree or disagree with the following statements. Briefly explain your answers.a. Increasing returns to scale refers to a situation where an increase in a firm’s scale of production leads to higher costs per unit produced.b. Constant returns to scale refers to a situation
2.5 The Languedoc-Roussillon region, southern France, is the home to three vineyards. Château Beauregard Mirouze produces 2,500 bottles of wine per month at a total cost of €40,000. Châteaude Bruthel produces 1,500 bottles of wine per month at a total cost of€27,000. Châteaude l’Esparrou
2.4 [related to the Economics in Practice on p. 229] Do you agree or disagree with the following statements? Explain in a sentence or two.a. A firm will never sell its product for less than it costs to produce it.b. If the short-run marginal cost curve is U-shaped, the long-run average cost curve
2.3 [related to the Economics in Practice on p. 227] One of the more recent innovations in computer technology is called “cloud computing.” With cloud computing, information and software are provided to computers on an “as-needed” basis, much like utilities are provided to homes and
2.2 Explain why it is possible that a firm with a production function that exhibits increasing returns to scale can run into diminishing returns at the same time.
2.1 For each of the following, decide whether you agree or disagree and explain your answer:a. Firms that exhibit constant returns to scale have U-shaped long-run average cost curves.b. Firms that exhibit increasing returns to scale are on the part of the long-run average cost curve that is
1.5 Construct a graph with AVC, ATC, and MC curves. On this graph add a marginal revenue curve for a representative firm in a perfectly competitive industry that is maximizing profits at a price of p*1. Add a second marginal revenue curve for a firm that is minimizing losses but continues to
1.4 You are given the following cost data:q TFC TVC 0 20 0 1 20 6 2 20 10 3 20 15 4 20 21 5 20 29 6 20 40 7 20 53 8 20 69 If the price of output is $12, how many units of output will this firm produce? What is the total revenue? What is the total cost? Will the firm operate or shut down in the
1.3 For cases A through F in the following table, would you(a) operate or shut down in the short run and (b) expand your plant or exit the industry in the long run?A B C D E F Total revenue 500 1,500 2,500 5,000 5,000 5,000 Total cost 800 1,000 3,200 4,500 5,000 5,500 Total fixed cost 150 500 200
1.2 Wonder World is a competitive firm operating under the following conditions: Price of output is $12, the profit maximizing level of output is 60,000 units, and the total cost (full economic cost) of producing 60,000 units is$800,000. The firm’s only fixed factor of production is a$1,000,000
1.1 For each of the following, decide whether you agree or disagree and explain your answer:a. A firm earning positive profits in the short run always has an incentive to increase its scale of operation in the long run.b. A firm suffering losses in the short run will continue to operate as long as
2.11 Marginal cost represents the increase in total cost that results from producing one more unit of output.Marginal product represents the additional output that can be produced by adding one more unit of a specific input, holding all other inputs constant. What does this imply about the
2.10 Use the information from your answer to the previous question to construct a rough plot showing marginal revenue, marginal cost, and average total cost. Also identify the profit-maximizing quantity of output on the graph.You will have to calculate average total cost from the information in the
2.9 Fill in the columns in the following table. What quantity should a profit-maximizing firm produce? Verify your answer with marginal reasoning.q TFC TVC MC P = MR TR TC Profit 0 $5 $ 0 $5 1 5 3 5 2 5 5 5 3 5 9 5 4 5 16 5 5 5 25 5 6 5 36 5
2.8 The following curve is a production function for a firm that uses just one variable factor of production, labor. It shows total output, or product, for every level of labor input.a. Derive and graph the marginal product curve.b. Suppose the wage rate is $3. Derive and graph the firm’s
2.7 The following is a total cost curve. Sketch the corresponding marginal cost curve. If the price of output is$3 and there are no fixed costs, what is the profitmaximizing level of output?
2.6 Felicity runs her family’s small cupcake shop, which designs and bakes cupcakes in different flavors. The capital stock of the firm consists of three machines of various vintages, each of which can produce cupcakes of any flavor. All of the machines are in excellent condition, and all
2.5 A firm’s costs are given in the following table.q TC TFC TVC AVC ATC MC 0 $50 — — — — —1 70 — — — — —2 80 — — — — —3 90 — — — — —4 110 — — — — —5 140 — — — — —6 175 — — — — —7 220 — — — — —8 280 — — — —
2.4 Do you agree or disagree with each of the following statements? Explain your reasons.a. For a competitive firm facing a market price above average total cost, the existence of economic profits means that the firm should increase output in the short run even if price is below marginal cost.b. If
2.3 You are given the following cost data:Total fixed costs are $60.q TVC 0 0 1 25 2 40 3 60 4 90 5 130 6 185 How many units of output will this firm produce at a price of $22 and at a price of $42? What is the total revenue and total cost at each price? What is the profit at each price? Briefly
2.2 Do you agree or disagree with this statement? Firms minimize costs; thus, a firm earning short-run economic profits will choose to produce at the minimum point on its average total cost curve.
2.1 [related to the Economics in Practice on p. 206] West End theatre, London, is considered to represent one of the highest levels of commercial theatre in the Englishspeaking world. The “theatre land” contains approximately fifty venues, attracting more than 14 million attendees in 2014. Box
1.9 Evaluate the following statement. If the total variable cost of production is the sum of the marginal cost of each additional unit of output, we can calculate the marginal cost by taking the total variable cost of production and dividing it by the quantity of output produced.
1.8 Explain how the following events would affect the cost curves in the graph from the previous question.a. Hourly wages for employees increase.b. The company signs a new 3-year contract with its landlord, which lowers its monthly rent by 10 percent.c. The company employs a new technology, which
1.7 Use the information in the graph to find the values for the following costs at an output level of 500.a. Total fixed costb. Total variable costc. Total costd. Marginal cost 0 500 Units of output$35 10 15 Cost per unit ($)MC ATC AVC
1.6 Explain which of the following is a fixed cost or a variable cost for Toyotaa. The cost of aluminum used for its automobiles.b. The property taxes on its Toyota City assembly plant.c. The cost of labor for its assembly line workers.d. The yearly payments for the naming rights for the Toyota
1.5 For each of the following businesses, what is the likely fixed factor of production that defines the short run?a. Airportb. Concert hallc. Accounting officed. Car factorye. Resort
1.4 The following table gives capital and labor requirements for 10 different levels of production
1.3 While charging a general admission price of HK$10 for adults most days of the week, the Hong Kong Museum of History offers free admission every Wednesday. Why do you suppose that museums often price this way, offering free admission on one day during the week? Why would they choose a day like
1.2 As of June 2014, John Green’s international bestselling novel, The Fault in Our Stars, had sold more than 10.7 million copies. In book publishing, fixed costs are high and marginal costs are low and fairly constant. Suppose that the fixed cost of producing The Fault in Our Stars is$4 million.
1.1 Consider the following costs of owning and operating a car. A ¥2,300,000 RAV4 financed over 48 months at 4 percent interest means a monthly payment of approximately ¥52,000. Insurance costs ¥20,000 a month regardless of how much you drive. The car gets 30 km per liter and uses regular-grade
1. can you think of other products or services that have low marginal costs and high fixed costs and conversely?
1A.5 Fashion Fantasy Company and Silky Style Company are each capable of minimizing their costs and can produce 8,000 pieces of garment per month. Fashion Fantasy’s factory is located in an area where the cost of labor is significantly less and the cost of capital is significantly more than those
1A.4 Each month, a company can rent capital for $7,500 per unit and can hire workers for $2,500 each. Currently, the company is using 4 units of capital and 6 workers to produce 10,000 units of output. This combination of capital and labor represents a cost-minimizing equilibrium. Draw an
1A.2 In the isoquant/isocost diagram (Figure 1), suppose the firm is producing 1,000 units of output at point A using 100 units of labor and 200 units of capital. As an outside consultant, what actions would you suggest to management to improve profits? What would you recommend if the firm were
1A.1 Assume that MPL = 10 and MPK = 6. Assume also that PL = 4 and PK = 2. This implies that the firm should substitute capital for labor. Explain why.
3.5 A firm can use three different production technologies, with capital and labor requirements at each level of output as follows:Technology 1 Technology 2 Technology 3 Daily Output K L K L K L 100 4 6 2 8 5 3 150 5 9 3 10 7 5 200 6 12 5 14 8 8 250 7 15 6 18 10 12a. Suppose the firm is operating
3.4 Since the 1980s, manufacturing firms in Hong Kong have been relocated to places with lower land rental rates and labor costs, most notably the Pearl River Delta. At the same time, firms in finance, insurance, and other parts of the service sector have been locating near the city centers of Hong
3.3 [related to the Economics in Practice on p. 185] Robert has entered a competition in which he must drive from his home town of Paris to London, a distance of approximately ?
3.2 An employee who works on the fifth floor of the headquarters of Patterson & Millers, a multinational law firm based in central London, is assigned to a new office on the eighth floor during his third year of career. He has 9 heavy boxes of documents and “stuff” to move. Discuss the
3.1 Suppose that widgets can be produced using two different production techniques, A and B. The following table provides the total input requirements for each of five different total output levels.Q = 1 Q = 2 Q = 3 Q = 4 Q = 5 Tech. K L K L K L K L K L A 4 1 6 2 9 4 12 7 11 8 B 1 3 2 5 4 8 5 12 7
2.8 Following is information on the production levels of three different firms.Firm A is currently producing at a quantity where it is experiencing increasing returns.Firm B is currently producing at a quantity where it is experiencing diminishing returns.Firm C is currently producing at a quantity
2.7 Assume that we have a production process that exhibits increasing and then decreasing marginal productivity.That is, as we increase output, the marginal product of labor starts at some level above zero, rises to a maximum, and then eventually falls to zero. Which of the following statements is
2.6 The following table represents data for Sally’s Salon.Draw a graph showing the total product, marginal product of labor, and average product of labor. Identify where increasing returns, diminishing returns, and negative returns set in on the total product curve.Labor Units(Employees)Total
2.5 The number of motorcycles assembled in a factory depends on the number of workers as follows:
2.4 During the early phases of industrialization, the number of people engaged in agriculture usually drops sharply, even as agricultural output is growing.Given what you know about production technology and production functions, explain this seeming inconsistency.
2.3 [related to the Economics in Practice on p. 184]Identical sweaters can be made in one of two ways.With a machine that can be rented for $50 per hour and a person to run the machine who can be hired at$25 per hour, five sweaters can be produced in an hour using $10 worth of wool. Alternatively,
2.2 The following is a production function.a. Draw a graph of marginal product as a function of output. (Hint: Marginal product is the additional number of units of output per unit of labor at each level of output.)b. Does this graph exhibit diminishing returns? Explain your answer.
2.1 The following table gives total output or total product as a function of labor units used.Labor Total Output 0 0 1 30 2 54 3 72 4 84 5 90a. Define diminishing returns.b. Does the table indicate a situation of diminishing returns?Explain your answer.
1.8 The data in the table represents annual costs and revenue for Anna’s Bakery, a bakery specializing in wedding cakes. Anna works 60 hours a week at the store. She also owns the building that houses her business, and if she closed the store, she could rent out the building for$65,000 per year
1.7 Which of the following are short-run decisions and which are long-run decisions?a. Royal Butch Shell acquires British energy supplier BG Group.b. Germany decides to permanently shut down all nuclear reactors by 2022.c. Madonna decides to add a second 2016 Hong Kong concert after an overwhelming
1.6 An article on cnet.com reported on the findings of the marketing research firm IHS in its investigation of the cost of the components used to produce the 128GB Apple iPad Air 2 model with wifi + cellular. The firm found that this iPad model costs $358 to produce, 57 percent less than its retail
1.5 Steve Collins runs the SC Steak House in London. The restaurant has been in business for 30 years and one of the most recommended steak houses in London. The total value of the restaurant’s capital stock is £4 million, which Steve owns outright. This year, the restaurant earned a total of
1.4 A firm earning zero economic profits is probably suffering losses from the standpoint of general accounting principles. Do you agree or disagree with this argument?Explain why.
1.3 Suppose that in 2015, you inherited from your grandfather a small planetarium that had been closed for several years. Your planetarium has a maximum capacity of 75 people and all the equipment is in working order.You decide to reopen the planetarium on the weekends as a new laser-tag venture
1.2 After working for 25 years as personal fitness trainers while raising their kids, three sisters cashed in a total of$120,000 in bonds and decided to open a small, neighborhood fitness center. They spent the $120,000 on exercise equipment, advertising, computer equipment, and other furnishings
1.1 Consider a firm that uses capital and labor as inputs and sells 20,000 units of output per year at the going market price of $15. Also assume that total labor costs to the firm are $250,000 annually. Assume further that the total capital stock of the firm is currently worth $400,000, that the

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